Same-Sex Couple Term Life Insurance

By Thomas Moran - March 8th 2013- republished with permission

The insurance world is changing in favor of lesbian and gay couples. Whereas before it was not possible to name your same-sex partner as a beneficiary on your life insurance policy, these days it is common for a civil partner to appear on a term or whole life insurance plan.

Although commonplace, not all insurance companies will insure same-sex couples and the ones that do may not offer the same benefits as those enjoyed by heterosexual partners. In addition, the requirements of lesbian and gay couples often differ to those of heterosexuals, so it's important to find an insurer who acknowledges this.

What All Gay Term Life Insurance Applicants Should Know:

As with any insurance application, the first thing you need to take into account is your budget and requirements as your needs must balance with your income. When purchasing term life insurance you will need to ascertain the specific term you require. Terms for this type of insurance will usually be offered in five year increments of between ten and thirty years.

After the duration of your term, the policy will end and you will need to revise your insurance plans. Should you die before the policy expires, your chosen beneficiary will receive the death benefit as per your policy plan.

Term life plans are cheaper than whole (or permanent) life insurance plans, as they don’t offer an investment product that acts as an asset. One problem with term life is that when renewing your policy, you will have to pay more. As with anything, costs rise with time and your renewed premium will usually be considerably more expensive than the level premium that you are used to paying.

Premiums are calculated according to your age and health status. If you are a smoker and/or partake in activities that may be considered high risk, you will be asked to pay more. In most cases (but not all) the paramedical exam must be taken as part of the application process.

Defining Your Insurance Requirements:

It is unfortunately a fact that gay couples need to buy more insurance than heterosexual couples. A good way to start would be to use a standard quote engine when calculating the basic costs and then add the extra expenses that will need to be covered to arrive at your final premium cost. An agent will help you, should you need a more detailed explanation.

Death benefit must cover final expenses, such as funeral costs. Once these are taken care of, any debts must be covered by your term life policy, if you don’t wish to pass them onto your loved-ones. Then you must take into account the mortgage on your house (if you have one), any dependents’ education fees and living expenses, particularly if you are one of the primary sources of income in the household. It is up to the individual just how much money to allocate for this, but once again, an agent will assist you in drawing up a plan that is feasible as per your budget whilst providing as much coverage as possible.

If you were, say, a 33 year old gay male living with a partner, an adopted child who is under five years old, an $80,000 income and a $130,000 mortgage, you may wish to opt for $150,000 worth of coverage to include your mortgage repayments and £20,000 final expenses. The child’s college fees (for their entire schooling) may require an additional $200,000, possibly more. Already you have racked up $350,000 to cover expenses, without leaving any money behind for their living costs.

This is all basic term life insurance calculation, so how does it differ for lesbian and gay term life insurance buyers? In a word: restrictions. There are several restrictions levelled at lesbian and gay insurance buyers and their families, affecting inheritance tax, estate tax, child survivor benefits and social security.

Inheritance Tax/Estate Tax Restrictions

When a partner in a heterosexual relationship dies, assets and property can be transferred tax free to their spouse. This is not the case for those in same-sex relationships. After a death, a gay partner will be responsible for paying state and federal estate and inheritance tax for all property left to them by the deceased. This can amount to a serious amount of money, so should there not be enough death benefit to provide for these taxes, the beneficiary could lose the property. This is a major reason why gay and lesbians need to take out more insurance than their heterosexual counterparts.

Child Survivor Benefit Restrictions

Those with children also come under restrictions as per federal law. Should you have a legally adopted child, or a biological child, the child will be eligible to receive child survivor benefit until they reach 18 years of age. This benefit can be substantial, providing thousands of dollars benefit to supplement the family income.

As gay and lesbian couples aren’t recognized under federal law, this ruling doesn’t apply to the non-custodial parent in the relationship. When a custodial partner dies, the non biological or adoptive parent will NOT qualify for their child to receive child survivor benefits. In this instance, the parents must calculate for this loss when buying life insurance.

Social Security Restrictions

Social Security issues death benefit, spousal benefits and survivor’s benefits when a married partner dies. These don’t apply to gay or lesbian couples, so this must also be factored in to your insurance plan. Lower income partners are affected more by this restriction, so it is often a good idea for the higher earning partner to purchase more insurance to cover their partner, should they die within the policy term.

What Next for Gay Term Life Insurance?

The federal government is gradually coming round to the idea of same-sex marriage and civil partnerships. If you are a partner in a same-sex relationship, you must be aware that the tide is beginning to turn in your favour, but this isn’t something which can occur overnight. In time, it is highly likely that gay or lesbian couples will be eligible for exactly the same benefits as heterosexuals both in the insurance industry and elsewhere. In the meantime it is important that you realize the differences and the restrictions and find a way to make it work for you. This is inevitably more expensive, but term life policies being very reasonably priced, plans remain affordable for average-earning same sex couples.

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